Crop insurance is a heavily regulated industry. Insurance agents must comply with many regulations regarding the sale of Multi-Peril Crop Insurance ("MPCI"), Crop Hail Insurance, and other named peril insurance. Many of these requirements, as they relate to AgriPeril's Farm Mapping System, are specified below.
MPCI Industry
The acreage and production information required to underwrite MPCI policies is grouped by an insurance term called a "unit". These unit groupings are used by the insurance company and the Federal Crop Insurance Corporation ("FCIC") to calculate premium, liability, and claim payments. A unit may contain several fields owned and/or operated by the same farmer. The production history of these fields are used to calculate the insured's Actual Production History ("APH"), which is also maintained on a unit-basis. The calculation of each unit's APH must meet many underwriting regulations as established by the FCIC. The APH has a significant impact on the insured's premium, liability, and loss processing.
The total production of all fields contained within a unit is used to calculate potential loss payments. For example, if a farmer chooses to purchase coverage at a level of 75% of the unit's APH, the farmer will only receive a loss payment if the total actual and/or appraised production is less than 75% of the insured's coverage. Therefore, a farmer could have 25 acres of a 100 acre unit totally destroyed by hail, but would not be in a loss situation if the other 75 acres met or exceeded their APH for the given unit.
Consequently, when several fields are grouped into one unit, the company's risk for potential claims is reduced because damage in one field may be offset by harvested production in excess of the unit's APH from other fields comprising the unit. Therefore, it is generally in the best interests of the farmer to have as many units as possible, and it is generally in the best interests of the insurance company and the FCIC to have as few units as possible.
There are regulations an insurer and agent must follow in determining which field or fields comprise a unit. For instance, under FCIC regulations, it is generally not acceptable to have multiple units for the same crop in the same section (a section is a land description generally pertaining to one continuous land block that is one square mile or 640 acres and forms one of the thirty-six (36) subdivisions of a township. However, the acreage and shape of the section and/or township can vary by state and/or county.).
Currently, a farmer reports the acreage and production information on a unit basis. Reporting such crop data by unit requires the farmer to know the fields which compose each unit and correctly aggregate the required information. There are several problems with this method of gathering field-related information: (1) this method is cumbersome to the farmer, as farmers seed, cultivate, and harvest individual fields, not units; (2) this method is susceptible to unreported field information and mathematical errors by the farmer; and (3) this method relies on the farmer to make sure the insurance company is complying with FCIC regulations.
First, this method is cumbersome because a farmer seeds, cultivates, and harvests an individual fields, not units. The unit is an insurance derived term with which a farmer is not initially familiar. Moreover, unit structure can vary from year to year and crop to crop. These issues unnecessarily complicate the reporting of field related information and are susceptible to unintended mistakes.
Second, this process leads to errors in totalling the acreage and production information when units and/or fields are inadvertently missed and unreported. Such errors will give the farmer a false sense of security, since he believes that all his fields were reported and are insured, only to find out later when he files a claim that the field with the crop damage was not reported. Moreover, the insurance companies' records regarding the historical yield on a particular unit (APH) could be inaccurate, which can have an effect on insurance premiums paid by the farmer and on any potential loss payments. Reporting unit totals, rather than field totals, is also susceptible to inadvertent mathematical errors made by the farmer when aggregating acreage and production information.
Third, the farmer's or agent's field grouping may not meet the Federal Crop Insurance Corporation ("FCIC") underwriting standards. Usually, the agent does not know the number or location of all the fields grouped within each unit. The agent would have to locate the farmer's land on a map, and then determine if the groupings meet FCIC standards, assuming the agent has kept up with the regulations. This method is cumbersome and prone to error.
Clearly, there is a need for a system that allows the agent to obtain this field-related data more accurately, verify that all fields are reported, and verify that FCIC and company underwriting standards have been met.
Hail and Other Named Peril Insurance
When purchasing crop hail and other named peril insurance, the farmer must provide detailed legal descriptions of each field, specifically the section, township and range of the fields to be insured before the policy can be rated. Unfortunately, many farmers incorrectly state or do not know the correct legal description of each field they own and/or operate and the policy could possibly be rated incorrectly. In addition, if the field extends across more than one township/range (a range is one of the north-south townships in the U.S. land survey that are numbered east and west from the principal meridian of the survey), then it is often rated at the lowest rate township or range. Consequently, the insurance company may not be charging a premium which accurately corresponds to the risk being taken. This inaccurate correspondence between premium and risk can also occur if a farmer reports his land as being in a particular township so that he can pay a lower premium. For all these reasons, the current system may result in inaccurate ratings for each field.
Clearly, there is a need for a system that will not require the farmer to know the detailed legal description of his fields and a system which will enable the agent to correctly rate each field. Such a system would protect both the insured and the insurer.
A further problem can arise when a farmer submits claims to his insurance company after a crop has been damaged, including damage caused by weather. Currently, to determine the validity of a weather-related claim, the insurer must retrieve regional weather data where the field is located for the specified damage date. The insurer must then compare the weather conditions from the weather report to the weather conditions stated in the claim and determine if the claim is valid. This method is inconvenient, time consuming, and cumbersome.
Clearly, there is a need for a system which can easily verify the validity of crop-damage claims for damage caused by weather conditions.